The Bank of England on Thursday lifted its key interest rate to the highest level since the 2008 financial crisis, noting inflation remained stubbornly high but that the economy would now avoid recession this year.

The BoE hiked the rate by a quarter-point to 4.5 percent — its 12th increase in a row with UK annual inflation stuck above 10 percent, fuelling a cost-of-living crisis across Britain.

Global policymakers are battling elevated inflation caused largely by runaway energy bills following last year’s invasion of Ukraine by major oil and gas producer Russia.

Following a regular policy meeting, the BoE warned of “considerable uncertainties” on when UK inflation would return to its two-percent target, as soaring food prices offset sharp drops to energy costs.

At the same time, the central bank made a record upgrade to its British GDP forecast, adding there would be only a small impact from recent turmoil in the commercial banking sector.

“Six months ago, we were expecting a shallow but long recession,” BoE governor Andrew Bailey told a press conference.

“Since then, energy prices have fallen substantially and economic activity is holding up much better than expected.”

– ‘Modest but positive’ growth –

Bailey said the UK would this year experience “modest but positive economic growth and a much smaller increase in unemployment.

“We think inflation will fall quite sharply over the coming months,” he added.

Official data Friday is expected to show the UK economy grew during the first quarter of this year after narrowly avoiding recession in the last three months of 2022.

The rate decision comes one week after UK Prime Minister Rishi Sunak’s Conservative government suffered a drubbing in local elections, as voters gave their verdict over rampant living costs despite government efforts to partly subsidise energy bills.

The nation has been plagued by strikes as high inflation erodes the value of wages. Train staff will walk out again on Friday following months of industrial action across the private and public sectors.

The latest BoE hike is set to deepen the crunch in living standards as retail banks pass on the increase, resulting in higher repayments on loans, including mortgages.

At the same time, those who can afford to save will benefit for increased fixed returns on investments.

“Although it is good news that the Bank of England is no longer forecasting recession, today’s interest rate rise will obviously be very disappointing for families with mortgages,” said British finance minister Jeremy Hunt.

– Highest inflation in G7 –

Thursday’s news took British borrowing costs to a level last seen in October 2008, before rates were slashed during the global financial crisis.

The BoE has ramped up borrowing costs from a record-low of 0.1 percent in December 2021.

Its latest hike came one week after the European Central Bank and the Federal Reserve implemented quarter-point rate increases as inflationary pressures ease only slightly in the eurozone and the United States.

UK annual inflation stood at 10.1 percent in March, the highest level in the Group of Seven richest nations.

Sunak and the BoE blame the high level in part on rises to pay and have urged employers to show restraint.

BoE chief economist Huw Pill recently stated that Britons need “to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices via higher wages”.

Bigsin:
What is the economic advantage of this action?

sexyking1:
They have spent all their money in coronation, now the masses will not bear the chunks. We are facing our own problem here.

Waffarianman:
Meaning?

Deeprooted:


Less money will be in circulation as everyone would like to have their money in the bank so as to enjoy the accruing interest on their capital.

dfrost:


And nobody will be doing borrow borrow to do owambe upandan 😝🤣😋

Deeprooted:


If anybody try an, lapo bank go carry interest frustrated him life.

dfrost:


How people dey borrow from these loans go do party still baffles me. Some even use go play bet 🤣🤦🏻😳

dyera:
If this prime minister no careful, he go still resign with disgrace of failure like the last woman. Make he dey careful with he policies, UK people no dey tolerate mistakes.

aspabay:
Global policymakers are battling elevated inflation caused largely by runaway energy bills following last year’s invasion of Ukraine by major oil and gas producer Russia.

If na Nigeria now, we will blame Buhari and Tinubu

Hambivert:
Active war or proxy war against Russia is not profitable for many reasons.
Instead of funding and wasting resources on the war happening in Ukraine, the UK government can channel that scarce resources in improving their home economy.

The US is suffering, the UK is suffering, although Russia is suffering, the level of Russia's suffering can't be compared to what the UK that is fighting a proxy war is suffering.

The governance and policies of Vladimir Putin needs to studied in institutions in the future.